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ANOTHER TAKEOVER PERSPECTIVE: Norilsk enters battle for LionOre

Just when we thought nickel couldnt get any more interesting, Russias NORILSK NICKEL has waded into the fray by m...


Just when we thought nickel couldnt get any more interesting, Russias NORILSK NICKEL has waded into the fray by making an all-cash offer for Canadas LIONORE MINING INTERNATIONAL, just weeks after XSTRATA of Switzerland tabled a deal worth Cdn$4.6 billion.

The Norilsk offer values each LionOre share at $21.50, compared to Xstratas $18.50/share. LionOre management, which originally welcomed Xstratas bid as a friendly takeover, has had to do an about-face. The Norilsk deal is worth $5.3 billion.

Having swallowed Falconbridge last year after a protracted bidding war, Xstrata shed some of its aluminum and nickel holdings as recently as last month. Then why the sudden interest in LionOre? Toronto-based LionOre controls the patented Activox hydrometallurgical process for treating sulphide ores. It is also a mid-size nickel producer from mines in Western Australia, South Africa and Botswana.

But Xstrata is not the worlds largest nickel producer. That honour goes to COMPANHIA VALE DO RIO DOCE (CVRD), which came away from the last round of nickel wars with the assets and businesses of another Canadian company, Inco Ltd. At 250,000 t/y, CVRD edges out Norilsk and its 243,000 t/y. Norilsk plus the 40,000 t/y that LionOre produces would become the worlds largest nickel producer. (Xstratas annual capacity is approximately 82,250 t.)

So there we have it: as long as the nickel price continues to rise (and it has increased 10-fold in the last four years), the big want to get bigger. The wisdom of increasing corporate size will be put to the test when the nickel price falls. Can the biggest companies then control their operating costs to maintain their profit margins? Time will tell.


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